2013 Audited Financials

22 Pages·2014·0.14 MB·English

Audited Financial Statements
and Supplementary Information

AIR FORCE AID SOCIETY, INC.

December 31, 2013
Air Force Aid Society, Inc.

Contents

Independent Auditor’s Report on the Financial Statements 1

Financial Statements

Statements of financial position 2

Statements of activities 3

Statements of cash flows 4

Notes to the financial statements 5 - 17

Other Financial Information

Independent auditor's report on other financial information 18

Schedule of functional expenses - 2013 19

Schedule of functional expenses - 2012 20
Independent Auditor’s Report
on the Financial Statements

To the Board of Trustees
Air Force Aid Society, Inc.

We have audited the accompanying financial statements of the Air Force Aid Society, Inc.
(the Society), which comprise the statements of financial position as of December 31, 2013
and 2012, and the related statements of activities and cash flows for the years then ended,
and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.
2 0 2 1 L S t r e e t, N W
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
Suite 400 considers internal control relevant to the entity’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.

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We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Air Force Aid Society, Inc. as of December 31, 2013
and 2012, and the changes in its net assets and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.

Washington, DC
July 18, 2014
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Air Force Aid Society, Inc.

Statements of Financial Position

December 31, 2013 2012
Assets
Cash and cash equivalents $ 3 ,945,572 $ 3,096,639
Investments 1 76,533,831 157,046,599
Emergency assistance and education loans receivable, net 5 ,531,517 5,765,851
Pledges receivable 2 4,290 48,223
Other assets 1 83,422 121,020
Property and equipment, net 6 35,534 440,968
Total assets $ 1 86,854,166 $ 166,519,300
Liabilities and net assets
Liabilities
Accounts payable and accrued expenses $ 3 56,749 $ 212,851
Other liabilities 1,248,644 1,190,698
Total liabilities 1,605,393 1,403,549
Net assets
Unrestricted 1 83,224,679 163,136,130
Temporarily restricted 2 37,290 229,817
Permanently restricted 1 ,786,804 1,749,804
Total net assets 1 85,248,773 1 65,115,751
Commitments and contingencies - -
Total liabilities and net assets $ 186,854,166 $ 166,519,300
See notes to the financial statements. 2
Air Force Aid Society, Inc.

Statements of Activities

Year Ended December 31, 2013 2012
Unrestricted activities
Operating revenues
Contributions:
Air Force Assistance Fund $ 4 ,550,860 $ 4 ,649,943
Other donations 2,575,750 1,902,810
Total contributions 7,126,610 6,552,753
Investment return designated for current
operations 7,283,920 7,330,380
Miscellaneous income 6,624 71,061
Collections on loans previously written off 5,603 8,740
Net assets released from restriction 228,817 33,811
Total operating revenues 14,651,574 13,996,745
Expenses
Program services
Educational assistance 6 ,488,633 6 ,213,278
Emergency assistance 2 ,163,376 2 ,147,927
Community enhancement 1 ,853,834 2 ,163,515
Total program services expenses 1 0,505,843 1 0,524,720
Supporting services
Management and general 1 ,338,243 1 ,207,999
Fundraising 5 65,863 6 74,302
Total supporting services 1 ,904,106 1 ,882,301
Total operating expenses 1 2,409,949 1 2,407,021
Change in unrestricted net assets from operations 2 ,241,625 1 ,589,724
Nonoperating activities
Post-retirement benefits charges other than net
periodic cost ( 16,711) ( 61,671)
Allowance for doubtful accounts estimate adjustment - 2 8,438
Investment return in excess of amounts
designated for current operations 1 7,875,635 1 0,938,277
Transfer to permanently restricted net assets ( 12,000)
Change in unrestricted net assets 2 0,088,549 1 2,494,768
Temporarily restricted activities
Contributions 236,290 229,817
Net assets released from restriction ( 228,817) ( 33,811)
Change in temporarily restricted net assets 7 ,473 1 96,006
Permanently restricted activities
Contributions 2 5,000 -
Transfer from unrestricted net assets 1 2,000 -
Change in permanently restricted net assets 37,000 -
Change in net assets 2 0,133,022 1 2,690,774
Net assets, beginning of year 1 65,115,751 152,424,977
Net assets, end of year $ 1 85,248,773 $ 1 65,115,751
See notes to the financial statements. 3
Air Force Aid Society, Inc.

Statements of Cash Flows

Year Ended December 31, 2013 2012
Cash flows from operating activities
Change in net assets $ 2 0,133,022 $ 1 2,690,774
Adjustments to reconcile change in net assets
to net cash used in operating activities:
Stock gifts ( 94,337) ( 6,861)
Depreciation and amortization 197,981 234,745
Bad debt expense 2 8,864 32,717
Net realized and unrealized gain on investments ( 21,425,049) ( 14,692,289)
Donated property and equipment - ( 8,680)
Changes in assets and liabilities:
Emergency and education loans receivable 2 05,470 (302,610)
Pledges receivable 2 3,933 (20,912)
Other assets ( 62,402) ( 80,355)
Investment income receivable ( 51,218) ( 81,622)
Accounts payable 1 43,898 ( 18,570)
Other liabilities 5 7,946 6 5,582
Total adjustments ( 20,974,914) ( 14,878,855)
Net cash used in operating activities ( 841,892) ( 2,188,081)
Cash flows from investing activities
Purchases of investments ( 117,495,486) ( 116,399,623)
Proceeds from sales and maturities of investments 1 19,578,858 1 19,096,632
Purchases of property and equipment ( 392,547) ( 197,846)
Net cash provided by investing activities 1 ,690,825 2 ,499,163
Net increase in cash and cash equivalents 8 48,933 3 11,082
Cash and cash equivalents, beginning of year 3 ,096,639 2 ,785,557
Cash and cash equivalents, end of year $ 3 ,945,572 $ 3 ,096,639

See notes to the financial statements. 4
Air Force Aid Society, Inc.

Notes to the Financial Statements

A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization: The Air Force Aid Society, Inc. (the Society), the official charity of the United
States Air Force (USAF or Air Force), is incorporated under the laws of Virginia as a private,
nonprofit organization. Its three-pronged charter promotes the Air Force mission by providing
worldwide emergency assistance to members and their families, sponsoring education
assistance programs, and offering a variety of base community enhancement programs that
impact member/family welfare.

The Society operates worldwide at every major USAF installation. The Society’s programs to
provide relief loans and grants are administered, in part, by the USAF Airman and Family
Readiness Centers located at these bases.

Income taxes: The Society is exempt from payment of income taxes under the provisions of
Section 501(c)(3) of the Internal Revenue Code. The Society believes that it has appropriate
support for income tax positions taken. Therefore, management has not identified any uncertain
income tax positions. Generally, income tax returns related to the current and three prior years
remain open for examination by taxing authorities.

Basis of accounting: The accompanying financial statements of the Society are presented on the
accrual basis of accounting. Consequently, revenue is recognized when earned and expense is
recognized when the obligation is incurred.

Use of estimates: Preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results could differ from
those estimates.

Cash and cash equivalents: Cash on-hand, deposits in banks, and short-term highly liquid debt
instruments with original maturities of three months or less are considered to be cash and cash
equivalents. Money market investments managed at the discretion of the investment manager
are considered to be investments.

Emergency assistance and education loans receivable: Loans receivable are reviewed for
potential write off when the loan is 90 to 120 days past due. The Society wrote off $31,184 and
$28,271 of loans receivable in 2013 and 2012, respectively. The allowance for doubtful accounts
amounts to $54,558 and $56,877 for the years ended December 31, 2013 and 2012,
respectively. During the year ended December 31, 2012, the Society adjusted the estimate for
the allowance for doubtful accounts from 1.5% to 1.0% of the outstanding emergency assistance
and education loans receivable, resulting in a $28,438 increase to the change in net assets.
There was no change in the percentage estimate for the allowance for the year ended December
31, 2013.

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Air Force Aid Society, Inc.

Notes to the Financial Statements

A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Investments: Investments consist of equity and fixed income securities, real estate funds, hedge
funds, a private equity fund, and money market funds. All the investments, except money market
funds, are carried at fair value and are held for long-term purposes to provide continuous funding
in support of the Society’s mission. The money market funds are carried at cost. Investments in
publicly traded securities are reflected in the financial statements at fair value based on quoted
market prices. The hedge funds and a private equity fund contain commingled trusts, which are
not listed on national markets or over-the-counter markets and for which quoted market prices
are not readily available. Management estimates of the fair value of these investments in
commingled trusts are based on the net asset value, unless additional adjustments are deemed
warranted by management. The net asset values are provided by the fund administrator and
external investment managers and may include information based on historical cost appraisals,
obtainable prices for similar assets, or other estimates.

Property and equipment: Purchases of property in excess of $1,000 are capitalized. Depreciation
of property is provided on the straight-line basis over the estimated service lives of the assets, which
range from three to eight years. Capitalized Software is included in property and equipment and is
amortized over the estimated service life of the software, which is three years. Donated property is
recorded at its fair value at the date of donation. Leasehold improvements are recorded at cost and
are amortized over the remaining life of the lease, which is currently scheduled to end on August 31,
2018.

Net assets: Net assets, revenues, gains, and losses are classified based on the existence or
absence of donor-imposed restrictions. Accordingly, the net assets of the Society and changes
therein are classified and reported as follows:

Unrestricted: Unrestricted net assets include those net assets whose use is not restricted by
donors, even though their use may be limited in other respects, such as by Board
designation. The unrestricted net assets of the Society consist only of undesignated net
assets, which are funds currently available to support the Society’s daily operations.

Temporarily restricted: Temporarily restricted net assets include those net assets whose
use has been donor restricted by specified purpose limitations or by the passage of time.

Permanently restricted: Permanently restricted net assets include those net assets whose
use has been limited by donor-imposed restrictions that neither expire by the passage of
time nor can be fulfilled or otherwise removed by actions of the Society.

Contributions: The Society receives contributions from Air Force members through the Air Force
Assistance Fund (AFAF) (see note below). Revenue is recognized in the period in which the
Society is notified by the AFAF of amounts received on its behalf. Other contributions are received
directly from individuals and organizations and may include unconditional promises to give
(pledges), which are recognized as revenue in the period received or when the promise is made.

When donor restrictions are met by actions of the Society and/or the passage of time, related net
assets are reclassified to unrestricted and reported in the statements of activities as net assets
released from restrictions.

Contributions with donor-imposed restrictions that are met in the same year as received are
reported as unrestricted revenues.

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Air Force Aid Society, Inc.

Notes to the Financial Statements

A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The Air Force Assistance Fund – Annual Campaign: The Society is one of four affiliates of the
Air Force Assistance Fund (AFAF). The annual AFAF Campaign, which is managed within the
Air Force, includes solicitation on behalf of the Society. Air Force members are able to designate
which affiliate will receive their donation and are encouraged to contribute through payroll
deductions/allotment. This annual campaign is the primary source of donations to the Society
and supports the “Airmen helping Airmen” philosophy on which the Society was founded.

Contributed services: Services provided by the USAF Airman and Family Readiness Center staff
are not recorded in the accompanying statements of activities since they do not require
specialized skills as defined by U.S. generally accepted accounting principles. As a result of the
2003 Defense Authorization Bill, the Department of the Air Force was given the authorization to
pay certain space and services costs for the benefit of the Society. This included $191,755 and
$269,721 in rent-related costs for 2013 and 2012, respectively. The Society also received and
recorded $0 and $8,680 in donated computer equipment in 2013 and 2012, respectively. The
Society capitalizes any equipment donated by the Air Force that meets the $1,000 capitalization
threshold, expensing $8,782 and $8,546 in related depreciation during the years ended
December 31, 2013 and 2012, respectively. A total of $191,755 and $278,401 of in-kind
donations were received in 2013 and 2012, respectively, and are recorded as other donations in
the statements of activities.

Measure of operations: The Society defines operations as all revenues and expenses that are an
integral part of its current year programs and supporting activities. Investment returns in excess
(deficit) of the Society’s aggregate board-authorized spending guideline, if any, plus the
unexpended portion of the current year’s temporarily restricted contributions are recognized as a
nonoperating activity.

The Society follows a total return spending guideline that is based on a 36 month moving average of
the investment portfolio’s monthly fair value. The long-term target for the spending guideline is set
by the Finance Committee and for 2013 and 2012 was 4.88% and 5.21%, respectively. The
Finance Committee reviews the distribution rate and dollar amount annually.

Functional expenses: Expenses of the Society are reported on a functional basis, dividing costs
between program services and support services. The three functional departments under
program services are: emergency assistance, education assistance, and community
enhancement programs. The two departments under support services are: management and
general support and fundraising. The Society uses a head count allocation system to spread
certain operational expenditures, including staffing costs, across the five functional units of the
organization.

Program and supporting services: The Society’s operations include the following programs and
supporting services:

Emergency Assistance – This program provides interest free loans and grants to Air Force
members, retirees, and widows based on the individual situation. These loans and grants are
provided to meet immediate financial needs in an emergency situation as a step toward a
lasting solution to a problem. The Society started a new Falcon Loan program in March 2008 to
make emergency assistance funds more easily accessible to Air Force members in need by
streamlining the application process. The Falcon loan program initially provided interest-free
loans of up to $500 to active duty Air Force members to be used for emergency financial needs.
During the year ended December 31, 2012, the loan maximum limit for a Falcon loan was
increased to $750.
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Air Force Aid Society, Inc.

Notes to the Financial Statements

A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Educational Assistance – Educational assistance has two major programs (see note F)

Spouse Tuition Assistance Program (STAP) – This community-oriented program provides
tuition assistance grants to spouses that accompany active duty members on their
overseas assignments. STAP motivates spouses to accompany members in overseas
locations where they will have the opportunity to take on-base classes that may enhance
their potential for employment upon returning to the United States. STAP is also a helpful
morale-building tool for commanders who want spouses to feel active and engaged in base
activities and have forums where spouses can interact. The STAP program was terminated
in July 2012. Spouses who utilized the program can now receive education support
through the General H.H. Arnold grant program.

General H.H. Arnold Education Grant Program – This program provides need-based grants
to sons, daughters, and spouses of Air Force members that are enrolled full-time in
undergraduate programs. To ensure an unbiased selection, the Society contracts with
Scholarship America for the determination of financial need, selection of grant recipients,
and the final disbursement services.

Community Enhancement – This program involves programs in four main areas: Child Care,
Parenting, Readiness (phone cards and vehicle safety checks), and Spouse/Youth
(education/orientation/job skills). These programs are designed to improve quality of life and
meet current and emerging needs of Air Force members during all stages of their career/life.

Management and General – Management and general expenses include those costs that
provide for the overall support and direction of the Society.

Fundraising – Fundraising activities include providing support materials for the AFAF Campaign
in addition to publicizing and conducting other fundraising activities that may involve soliciting
contributions from individuals, corporations, and others. These costs also include the costs of
the Society’s biggest fundraising event, the US Air Force Charity Ball, which generated
$717,021 and $655,827 for the Society during the years ended December 31, 2013 and
2012, respectively.

Subsequent events: Subsequent events have been evaluated through July 18, 2014, which is the
date the financial statements were available to be issued.

B. CONCENTRATIONS

Credit risk: The Society maintains demand deposits with commercial banks and money market
funds with financial institutions. At times, certain balances held within these accounts may not be
fully guaranteed or insured by the U.S. federal government. The uninsured portions of cash and
money market accounts are backed solely by the assets of the underlying institution. As such,
the failure of an underlying institution could result in financial loss to the Society.

Market value risk: The Society also invests funds in a professionally managed portfolio that
contains various securities detailed in Note C. The portfolio includes professionally managed
hedge and private equity funds which are reported at their estimated fair value as determined by
the fund managers. Management believes the fund managers' estimates to be reasonable
approximations of the fair values of the hedge funds. Such investments are exposed to various
risks, such as fluctuations in market value and credit risk. Thus, it is at least reasonably possible
that changes in these risks in the near term could materially affect investment balances and the
amounts reported in the financial statements.
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